What changed in this filing

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Item 1. Financial Statements

2024-04-18 compared with 2023-10-19 · 143 added, 285 removed, 536 unchanged (44% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands except share data) September 30, 2023 December 31, 2022

(in thousands except share data) March 31, 2024 December 31, 2023

Cash and due from banks $ 167,985 $ 200,493

25 unchanged sentences

Authorized shares - 10,000,000

Issued shares - 300,000 at September 30, 2023 and December 31, 2022

Issued shares - 300,000 at March 31, 2024 and December 31, 2023

300,000 300,000

1 unchanged sentence

Authorized shares - 100,000,000

Issued shares - 51,110,447 and 50,867,298 at September 30, 2023 and December 31, 2022, respectively

Issued shares - 51,420,680 and 51,142,979 at March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital 1,044,669 1,045,576

Retained earnings 2,457,222 2,435,393

Treasury stock - 3,095,444 and 2,083,535 shares at cost at September 30, 2023 and December 31, 2022, respectively

Treasury stock - 4,434,405 and 3,905,067 shares at cost at March 31, 2024 and December 31, 2023, respectively

( 251,857 ) ( 220,334 )

5 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME AND OTHER

COMPREHENSIVE INCOME/(LOSS) - UNAUDITED

Three Months Ended September 30, Nine Months Ended September 30,

COMPREHENSIVE INCOME - UNAUDITED

Three Months Ended March 31,

(in thousands except per share data) 2024 2023

16 unchanged sentences

Brokered loan fees 1,911 1,895

Investment banking and trading income 29,191 7,812 75,457 23,117

Investment banking and advisory fees 18,424 14,564

Trading income 4,712 4,204

Other 6,366 8,289

20 unchanged sentences

Other comprehensive income/(loss), net of tax ( 17,882 ) 44,181

Comprehensive income/(loss) $ ( 3,925 ) $ ( 121,793 ) $ 82,022 $ ( 272,477 )

Comprehensive income

$ 8,260 $ 82,842

Basic earnings per common share $ 0.46 $ 0.71

6 unchanged sentences

(in thousands except share data) Shares Amount Shares Amount Capital Earnings Shares Amount Income/(Loss) Total

Balance at June 30, 2022 300,000 $ 300,000 50,820,337 $ 508 $ 1,015,105 $ 2,013,458 ( 942,296 ) $ ( 50,031 ) $ ( 272,208 ) $ 3,006,832

Comprehensive income/(loss):

Net income — — — — — 41,418 — — — 41,418

Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 163,211 ) ( 163,211 )

Total comprehensive loss ( 121,793 )

Stock-based compensation expense recognized in earnings — — — — 5,376 — — — — 5,376

Preferred stock dividend — — — — — ( 4,313 ) — — — ( 4,313 )

Issuance of stock related to stock-based awards — — 19,685 1 ( 328 ) — — — — ( 327 )

Balance at September 30, 2022 300,000 $ 300,000 50,840,022 $ 509 $ 1,020,153 $ 2,050,563 ( 942,296 ) $ ( 50,031 ) $ ( 435,419 ) $ 2,885,775

Balance at June 30, 2023 300,000 $ 300,000 51,087,965 $ 511 $ 1,035,063 $ 2,362,189 ( 3,095,444 ) $ ( 175,528 ) $ ( 440,308 ) $ 3,081,927

Comprehensive income/(loss):

Net income — — — — — 61,679 — — — 61,679

Change in other comprehensive income/(loss), net of taxes — — — — — — — — ( 65,604 ) ( 65,604 )

Total comprehensive income ( 3,925 )

Stock-based compensation expense recognized in earnings — — — — 4,441 — — — — 4,441

Preferred stock dividend — — — — — ( 4,313 ) — — — ( 4,313 )

Issuance of stock related to stock-based awards — — 22,482 — ( 430 ) — — — — ( 430 )

Balance at September 30, 2023 300,000 $ 300,000 51,110,447 $ 511 $ 1,039,074 $ 2,419,555 ( 3,095,444 ) $ ( 175,528 ) $ ( 505,912 ) $ 3,077,700

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED

Preferred Stock Common Stock Additional Treasury Stock Accumulated Other

Paid-in Retained Comprehensive

(in thousands except share data) Shares Amount Shares Amount Capital Earnings Shares Amount Income/(Loss) Total

Balance at December 31, 2022 (audited)

300,000 $ 300,000 50,867,298 $ 509 $ 1,025,593 $ 2,263,502 ( 2,083,535 ) $ ( 115,310 ) $ ( 418,943 ) $ 3,055,351

Comprehensive income/(loss):

Comprehensive income:

Net income — — — — — 38,661 — — — 38,661

Change in other comprehensive income/(loss), net of taxes

Total comprehensive loss ( 272,477 )

— — — — — — — — 44,181 44,181

Total comprehensive income

Stock-based compensation expense recognized in earnings

4 unchanged sentences

Repurchase of common stock — — — — — — ( 1,011,909 ) ( 60,218 ) — ( 60,218 )

Balance at September 30, 2022 300,000 $ 300,000 50,840,022 $ 509 $ 1,020,153 $ 2,050,563 ( 942,296 ) $ ( 50,031 ) $ ( 435,419 ) $ 2,885,775

Balance at March 31, 2023 300,000 $ 300,000 50,947,306 $ 509 $ 1,031,905 $ 2,297,850 ( 3,095,444 ) $ ( 175,528 ) $ ( 374,762 ) $ 3,079,974

Balance at December 31, 2023 (audited)

300,000 $ 300,000 51,142,979 $ 511 $ 1,045,576 $ 2,435,393 ( 3,905,067 ) $ ( 220,334 ) $ ( 362,004 ) $ 3,199,142

Comprehensive income/(loss):

Comprehensive income:

Net income — — — — — 26,142 — — — 26,142

7 unchanged sentences

Repurchase of common stock — — — — — — ( 529,338 ) ( 31,523 ) — ( 31,523 )

Balance at September 30, 2023 300,000 $ 300,000 51,110,447 $ 511 $ 1,039,074 $ 2,419,555 ( 3,095,444 ) $ ( 175,528 ) $ ( 505,912 ) $ 3,077,700

Balance at March 31, 2024 300,000 $ 300,000 51,420,680 $ 514 $ 1,044,669 $ 2,457,222 ( 4,434,405 ) $ ( 251,857 ) $ ( 379,886 ) $ 3,170,662

See accompanying notes to consolidated financial statements.

TEXAS CAPITAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

Nine Months Ended September 30,

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

(in thousands) 2024 2023

6 unchanged sentences

Stock-based compensation expense 8,534 8,438

Purchases and originations of loans held for sale ( 706 ) ( 1,642 )

Proceeds from sales and repayments of loans held for sale 15,605 8,749

4 unchanged sentences

Investing activities

Purchases of available-for-sale securities ( 849,392 ) ( 665,388 )

Purchases of available-for-sale debt securities ( 596,610 ) ( 849,391 )

Proceeds from sales of available-for-sale debt securities — 56,923

7 unchanged sentences

Net cash used in investing activities

( 809,960 ) ( 1,535,776 )

Financing activities

4 unchanged sentences

Net increase/(decrease) in short-term borrowings ( 750,000 ) 898,858

Redemption of long-term debt ( 75,000 ) —

Net cash provided by/(used in) financing activities 1,068,335 ( 4,179,323 )

Net decrease in cash and cash equivalents ( 819,484 ) ( 4,306,412 )

Net cash provided by financing activities

787,432 155,018

Net increase/(decrease) in cash and cash equivalents

73,292 ( 1,362,555 )

Cash and cash equivalents at beginning of period 3,242,850 5,012,260

2 unchanged sentences

Cash paid during the period for interest $ 267,955 $ 142,623

Cash paid during the period for income taxes 56,161 48,569

Cash paid/(refunded) during the period for income taxes

Transfers of loans from held for investment to held for sale 9,250 —

Transfers of debt securities from available-for-sale to held-to-maturity — 1,019,365

See accompanying notes to consolidated financial statements.

3 unchanged sentences

Texas Capital Bancshares, Inc.

(“TCBI” or the “Company”), a Delaware corporation, was incorporated in November 1996 and commenced banking operations in December 1998.

(“TCBI” or the “Company”), a Delaware corporation, was incorporated in 1996 and commenced banking operations in 1998.

The consolidated financial statements include the accounts of TCBI and its wholly owned subsidiary, Texas Capital Bank (the “Bank”), a full-service financial services firm that delivers customized solutions to businesses, entrepreneurs and individual customers.

The Company is headquartered in Dallas with offices in Austin, Houston, San Antonio, and Fort Worth, and has built a network of clients across the country.

The Company is headquartered in Dallas, with primary banking offices in Austin, Dallas, Fort Worth, Houston and San Antonio, and has built a network of clients across the country.

Basis of Presentation

11 unchanged sentences

The allowance for credit losses, the fair value of financial instruments and the status of contingencies are particularly susceptible to significant change.

In the second quarter of 2023, changes were made to certain estimates used in the Company’s current expected credit loss model, the most significant of which are more granular estimates of historical loss rates to incorporate probability of default and loss severities and allocations of expected losses to outstanding loan balances and off-balance sheet financial instruments.

As a result of these changes, corresponding adjustments were also made to the Company’s portfolio segments to appropriately pool loans with similar risk characteristics and to the speed at which the Company reverts to historical loss rates for periods beyond which management is able to develop reasonable and supportable forecasts.

The below accounting policy from the Company’s 2022 Form 10-K has been updated to incorporate these changes.

Allowance for Credit Losses

The Company’s allowance for credit losses is determined using a current expected credit loss (“CECL”) model.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor.

The following is a discussion of the allowance for credit losses on loans held for investment and off-balance sheet credit exposures.

See Note 1 - Operations and Summary of Significant Accounting Policies - Investment Securities - Debt Securities in the Company’s 2022 Form 10-K for discussion of the allowance for credit losses on available-for-sale and held-to-maturity debt securities.

The CECL methodology recognizes lifetime expected credit losses immediately when a financial asset is originated or purchased.

The allowance for credit losses on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance for credit losses on off-balance sheet financial instruments is recorded in other liabilities on the consolidated balance sheets,

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term, as well as for changes in macroeconomic conditions, such as changes in unemployment rates, gross domestic product, property values, or other relevant factors.

The allowance for credit losses is comprised of reserves measured on a collective (pool) basis when similar risk characteristics exist.

Loans that do not share risk characteristics are assigned a reserve based on an individual evaluation and are not included in the collective (pool) evaluation.

For purposes of determining the collective (pool) allowance for credit losses, the loan portfolio is segregated into pools first by portfolio segment and then by past due status or credit grade.

Each pool is assigned a loss estimate, reflecting historical loss rates that incorporate probability of default and severity of losses over the estimated remaining life of the loans.

These loss estimates are then modified to incorporate a reasonable and supportable forecast of future losses at the pool level, as well as any necessary qualitative adjustments using a Portfolio Level Qualitative Factor (“PLQF”) and/or a Portfolio Segment Level Qualitative Factor (“SLQF”).

A similar process is employed to calculate a reserve assigned to off-balance financial instruments, specifically unfunded loan commitments and letters of credit.

Modified loss estimates are assigned based on the balance of the commitments estimated to be outstanding at the time of default.

The PLQF and SLQF are utilized to address factors that are not present in historical loss rates and are otherwise unaccounted for in the quantitative process.

The PLQF is used to apply a qualitative adjustment across the entire portfolio of loans, while the SLQF is designed to apply a qualitative adjustment across a single portfolio segment.

Even though portions of the allowance may be allocated to specific loans, the entire allowance is available for any credit that, in management’s judgment, should be charged off.

The Company generally uses a two-year forecast period, based on a single forecast scenario or a blend of multiple forecast scenarios, using variables management believes are most relevant to each portfolio segment.

For periods beyond which management is able to develop reasonable and supportable forecasts, the Company reverts to the average historical loss rate, reflecting historical default probabilities and loss severities, using a reversion speed that approximates 1 to 2 years.

The forecast period and scenario(s) used are reviewed on a quarterly basis and may be adjusted based on management's view of the current economic conditions and level of predictability the forecast can provide.

Portfolio segments are used to pool loans with similar risk characteristics and align with the Company’s methodology for measuring expected credit losses.

A summary of the primary portfolio segments is as follows:

The commercial loan portfolio is comprised of lines of credit for working capital, term loans, reserve-based loans to energy exploration and production companies, and leases to finance equipment and other business assets across a variety of industries.

These loans are used for general corporate purposes including financing working capital, internal growth, and acquisitions and are generally secured by accounts receivable, inventory, oil and gas reserves, equipment and other assets of clients’ businesses.

Mortgage Finance.

Mortgage finance loans relate to mortgage warehouse lending operations in which the Company purchases mortgage loan ownership interests from unaffiliated mortgage originators that are generally held for a period of less than 30 days and more typically 10-20 days before they are sold to an approved investor.

Volumes fluctuate based on the level of market demand for the product and the number of days between purchase and sale of the loans, which can be affected by changes in overall market interest rates and housing demand and tend to peak at the end of each month.

Mortgage finance loans are consistently underwritten based on standards established by the approved investors.

Market conditions or events of default by an investor or originator could require that the Company repurchases the remaining interests in the mortgage loans and hold them beyond the expected 10-20 days.

Commercial Real Estate (“CRE”).

The CRE portfolio is comprised of construction/development financing and limited term financing provided to professional real estate developers, owners/managers of commercial real estate projects and properties, and residential builders/developers.

Collateral properties include office buildings, warehouse/distribution buildings, shopping centers, hotels/motels, senior living, apartment buildings, residential and commercial tract developments, and raw land or lots to be developed into single-family homes.

The primary source of repayment on these loans is expected to come from the sale, permanent financing or lease of the real property collateral.

The performance of these loans is impacted by fluctuations in collateral values, the ability of the borrower to obtain permanent financing, and, in the case of loans to residential builder/developers, volatility in consumer demand.

This category of loans is comprised of loans made to consumers for personal expenditures, first and second lien mortgages made for the purpose of purchasing or constructing 1-4 family residential dwellings and home equity revolving lines of credit.

The Company has several pass credit grades that are assigned to loans based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring.

Within the criticized/classified credit grades are special mention, substandard and doubtful.

Special mention loans are those that are currently protected by the sound worth and paying capacity of the borrower, but that are potentially weak and constitute an additional credit risk.

These loans have the potential to deteriorate to a substandard grade due to the existence of financial or administrative deficiencies.

Substandard loans have a well-defined weakness or weaknesses that

jeopardizes the liquidation of the debt.

They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Some substandard loans are inadequately protected by the sound worth and paying capacity of the borrower and of the collateral pledged and may be considered impaired.

Substandard loans can be accruing or can be on non-accrual depending on the circumstances of the individual loans.

Loans classified as doubtful have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make collection in full highly questionable and improbable.

The possibility of loss is extremely high.

All doubtful loans are on non-accrual.

The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions.

Changes are reflected in the pool-basis allowance and in reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information.

As the Company’s portfolio has matured, historical loss ratios have been closely monitored.

The review of the appropriateness of the allowance is performed by executive management and presented to the audit and risk committees of the board of directors for their review.

The committees report to the board as part of the board's quarterly review of the Company’s consolidated financial statements.

When management determines that foreclosure is probable, and for certain collateral-dependent loans where foreclosure is not considered probable, expected credit losses are based on the estimated fair value of the collateral adjusted for selling costs, when appropriate.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals and modifications unless either of the following applies:

management has a reasonable expectation that a loan will be restructured or the extension or renewal options are included in the borrower contract and are not unconditionally cancellable.

The Company does not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status as discussed above.

(2) Earnings Per Share

The following table presents the computation of basic and diluted earnings per share:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands except share and per share data) 2024 2023

13 unchanged sentences

Losses Estimated

September 30, 2023

March 31, 2024

Available-for-sale debt securities:

21 unchanged sentences

Total investment securities(2) $ 4,143,194

(1) Excludes accrued interest receivable of $ 8.1 million and $ 6.6 million at September 30, 2023 and December 31, 2022, respectively, related to available-for-sale debt securities and $ 1.4 million and $ 1.5 million at September 30, 2023 and December 31, 2022, respectively, related to held-to-maturity debt securities that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(1) Excludes accrued interest receivable of $ 10.4 million and $ 9.5 million at March 31, 2024 and December 31, 2023, respectively, related to available-for-sale debt securities and $ 1.4 million and $ 1.4 million at March 31, 2024 and December 31, 2023, respectively, related to held-to-maturity debt securities that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(2) Includes available-for-sale debt securities and equity securities at estimated fair value and held-to-maturity debt securities at amortized cost.

Debt Securities

The Company did not sell any available-for-sale debt securities in the first quarter of 2024.

In the first quarter of 2023, the Company sold U.S.

Treasury securities with an amortized cost of $ 56.4 million and realized a gain of $ 489,000 .

The amortized cost and estimated fair value as of September 30, 2023, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity.

The amortized cost and estimated fair value as of March 31, 2024, excluding accrued interest receivable, of available-for-sale and held-to-maturity debt securities are presented below by contractual maturity.

Actual maturities may differ from contractual maturities of mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

6 unchanged sentences

Total $ 3,852,570 $ 3,491,510 $ 849,283 $ 737,111

The table below presents the weighted average yields for the Company’s available-for-sale debt securities for the three months ended March 31, 2024.

Weighted average yields are calculated based on amortized cost on a tax-exempt basis assuming a 21% tax rate, where applicable.

Treasury securities U.S.

government agency securities Residential mortgage-backed securities CRT securities

Due within one year — % — % — % — %

Due after one year through five years 2.71 1.00 — —

Due after five years through ten years — 1.21 1.23 5.45

Due after ten years — — 3.32 —

Total 2.71 % 1.13 % 3.31 % 5.45 %

The following table discloses the Company’s available-for-sale debt securities that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months:

1 unchanged sentence

(in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

September 30, 2023

March 31, 2024

Treasury securities $ — $ — $ 385,553 $ ( 16,099 ) $ 385,553 $ ( 16,099 )

9 unchanged sentences

Total $ 910,999 $ ( 19,751 ) $ 2,256,400 $ ( 327,379 ) $ 3,167,399 $ ( 347,130 )

At September 30, 2023, the Company had 111 available-for-sale debt securities in an unrealized loss position, comprised of 11 U.S.

At March 31, 2024, the Company had 112 available-for-sale debt securities in an unrealized loss position, comprised of 10 U.S.

Treasury securities, five U.S.

3 unchanged sentences

Held-to-maturity securities consist of government guaranteed securities for which no loss is expected.

At September 30, 2023 and December 31, 2022, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities.

At September 30, 2023, debt securities with carrying values of approximately $ 1.5 million were pledged to secure certain customer deposits.

At December 31, 2022, debt securities with carrying values of approximately $ 16.1 million and $ 1.4 million were pledged to secure certain customer repurchase agreements and deposits, respectively.

At March 31, 2024 and December 31, 2023, no allowance for credit losses was established for available-for-sale or held-to-maturity debt securities.

At March 31, 2024 and December 31, 2023, debt securities with carrying values of approximately $ 1.5 million and $ 1.6 million, respectively, were pledged to secure certain customer deposits.

Equity Securities

Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments in exchange traded funds, primarily related to the Company’s non-qualified deferred compensation plan.

Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments in exchange traded funds.

The following is a summary of unrealized and realized gains/(losses) recognized on equity securities included in other non-interest income on the consolidated statements of income and other comprehensive income:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2024 2023

3 unchanged sentences

(4) Loans and Allowance for Credit Losses on Loans

As discussed in Note 1 - Operations and Summary of Significant Accounting Policies, in the second quarter of 2023, changes were made to certain estimates used in the Company’s current expected credit loss model which resulted in adjustments being made to the Company’s portfolio segments.

As a result, certain prior period balances below have been reclassified to conform to the current period presentation of portfolio segments.

Loans are summarized by portfolio segment as follows:

(in thousands) September 30, 2023 December 31, 2022

(in thousands) March 31, 2024 December 31, 2023

Loans held for investment(1):

12 unchanged sentences

Total loans held for sale $ 37,750 $ 44,105

(1) Excludes accrued interest receivable of $ 117.1 million and $ 100.4 million at September 30, 2023 and December 31, 2022, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

(1) Excludes accrued interest receivable of $ 114.0 million and $ 118.1 million at March 31, 2024 and December 31, 2023, respectively, that is recorded in accrued interest receivable and other assets on the consolidated balance sheets.

The following tables summarize gross loans held for investment by year of origination and internally assigned credit grades:

1 unchanged sentence

and prior Revolving lines of credit Revolving lines of credit converted to term loans Total

September 30, 2023

March 31, 2024

(1-7) Pass $ 259,505 $ 1,520,538 $ 1,318,364 $ 273,069 $ 121,851 $ 279,527 $ 6,133,867 $ 15,177 $ 9,921,898

48 unchanged sentences

Total $ 2,183,954 $ 3,497,551 $ 1,490,895 $ 657,182 $ 524,006 $ 893,218 $ 11,129,125 $ 44,885 $ 20,420,816

Gross charge-offs $ 8,364 $ 5,090 $ 25,578 $ — $ 15,243 $ 883 $ 698 $ 871 $ 56,727

The following table details activity in the allowance for credit losses on loans.

The changes made to the Company’s current expected credit loss model, as discussed above and in Note 1 - Operations and Summary of Significant Accounting Policies, resulted in a reallocation of the allowance for credit losses between loan portfolio segments and allowance balances allocated to off-balance sheet financial instruments, the results of which are included in the table below.

The changes made result in a higher allocation of losses to off-balance sheet financial instruments.

See Note 6 - Financial Instruments with Off-Balance Sheet Risk for information regarding the allowance for credit losses on off-balance sheet financial instruments.

As discussed in Note 1 - Operations and Summary of Significant Accounting Policies in the Company’s 2023 Form 10-K, in the second quarter of 2023, changes were made to certain estimates used in the Company’s current expected credit loss model which resulted in adjustments being made to the Company’s portfolio segments.

As a result, prior period balances in the table below have been reclassified to conform to the current period presentation of portfolio segments.

Allocation of a portion of the allowance to one category does not preclude its availability to absorb losses in other categories.

1 unchanged sentence

Finance Commercial Real Estate Consumer Total

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Beginning balance $ 171,437 $ 4,173 $ 71,829 $ 2,534 $ 249,973

4 unchanged sentences

Ending balance $ 183,974 $ 5,998 $ 71,290 $ 2,700 $ 263,962

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Beginning balance $ 185,303 $ 10,745 $ 54,268 $ 3,153 $ 253,469

4 unchanged sentences

Ending balance $ 199,770 $ 7,400 $ 50,458 $ 3,300 $ 260,928

The Company recorded a $ 28.5 million provision for credit losses on loans for the nine months ended September 30, 2023, compared to $ 27.6 million for the same period of 2022.

The $ 28.5 million provision for credit losses on loans resulted primarily from increases in criticized loans and total loans held for investment during the nine months ended September 30, 2023.

Net charge-offs of $ 37.1 million were recorded during the nine months ended September 30, 2023, compared to net charge-offs of $ 4.9 million during the same period of 2022.

Criticized loans totaled $ 677.4 million at September 30, 2023, $ 513.2 million at December 31, 2022 and $ 484.0 million at September 30, 2022.

The Company recorded a $ 24.8 million provision for credit losses on loans for the three months ended March 31, 2024, compared to $ 27.4 million for the same period of 2023.

The $ 24.8 million provision for credit losses on loans resulted primarily from increases in criticized and non-accrual loans, growth in loans held for investment and $ 10.8 million in net charge-offs recorded during the three months ended March 31, 2024.

Net charge-offs of $ 10.8 million were recorded during the three months ended March 31, 2024, compared to net charge-offs of $ 19.9 million during the same period of 2023.

Criticized loans totaled $ 859.5 million at March 31, 2024, compared to $ 738.2 million at December 31, 2023.

At September 30, 2023, the Company had $ 50.4 million in collateral-dependent commercial loans, collateralized by business assets.

At March 31, 2024, the Company had $ 47.1 million in collateral-dependent commercial loans, collateralized by business assets, $ 11.3 million in collateral-dependent commercial real estate loans, collateralized by real estate, and $ 1.0 million in collateral-dependent consumer loans, collateralized by real estate.

The table below provides an age analysis of gross loans held for investment:

3 unchanged sentences

Due Non-accrual(1) Current Total Non-accrual With No Allowance

September 30, 2023

March 31, 2024

Commercial $ 3,340 $ 759 $ 3,406 $ 7,505 $ 80,516 $ 10,295,163 $ 10,383,184 $ 14,889

3 unchanged sentences

Total $ 4,029 $ 759 $ 3,674 $ 8,462 $ 92,849 $ 20,807,610 $ 20,908,921 $ 15,873

(1) As of September 30, 2023, $ 358,000 of non-accrual loans were earning interest income on a cash basis compared to $ 2.2 million as of December 31, 2022.

Additionally, $ 37,000 of interest income was recognized on non-accrual loans for the nine months ended September 30, 2023 compared to $ 801,000 for the same period in 2022.

Accrued interest of $ 1.7 million and $ 100,000 was reversed during the nine months ended September 30, 2023 and September 30, 2022, respectively.

(1) As of March 31, 2024, $ 1.3 million of non-accrual loans were earning interest income on a cash basis compared to $ 358,000 as of December 31, 2023.

Additionally, $ 18,000 of interest income was recognized on non-accrual loans for the three months ended March 31, 2024 compared to none for the same period in 2023, respectively.

Accrued interest of $ 487,000 and $ 1.5 million was reversed during the three months ended March 31, 2024 and March 31, 2023, respectively.

Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023.

The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The table below details gross loans held for investment as of September 30, 2023 made to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2023:

The table below details gross loans held for investment as of March 31, 2024 and March 31, 2023 made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2024 and March 31, 2023 by type of modification granted and the financial effect of those modifications:

Financial Statement Impact

($ in thousands) Payment

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Extension Interest Rate

Extension Total Percentage of

Three Months Ended September 30, 2023

Commercial $ 271 $ 6,372 $ — $ — $ 6,643 0.03 %

Total $ 271 $ 6,372 $ — $ — $ 6,643 0.03 %

Nine Months Ended September 30, 2023

Extension Total Percentage of Loans Held for Investment Interest Rate Reduction Term Extension (in months) Payment Deferrals

Three Months Ended March 31, 2024

Commercial $ 11,575 $ 300 $ — $ — $ 11,875 0.06 % — % 12

Total $ 11,575 $ 300 $ — $ — $ 11,875 0.06 %

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023:

Interest Rate

Reduction Term Extension

(in months) Total Payment

(in thousands)

Three Months Ended September 30, 2023

Commercial — % 1 to 1

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2023

Commercial $ 31,431 $ 1,800 $ 3,477 $ 14,933 $ 51,641 0.26 % 0.70 % 6 to 36

For the three months ended September 30, 2023 there were no loans that experienced a default subsequent to being modified in the prior twelve months.

During the nine months ended September 30, 2023, commercial loans totaling $ 161,000 experienced a default subsequent to being granted a term extension modification in the prior twelve months.

Total $ 31,431 $ 1,800 $ 3,477 $ 14,933 $ 51,641 0.26 %

The table below details loans that experienced a default during the three months ended March 31, 2024, subsequent to being granted a modification in the prior twelve months.

Default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.

The table below provides an age analysis of gross loans held for investment as of September 30, 2023 made to borrowers experiencing financial difficulty that were modified on or after January 1, 2023, the date the Company adopted ASU 2022-02:

(in thousands)

Deferral Payment Deferral

and Term Extension

Three Months Ended March 31, 2024

Commercial $ 3,129 $ 1,756 $ 4,885

Total $ 3,129 $ 1,756 $ 4,885

The table below provides an age analysis of gross loans held for investment as of March 31, 2024 made to borrowers experiencing financial difficulty that were modified in the prior twelve months:

(in thousands) 30-89 Days

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Past Due Non-Accrual Current Total

September 30, 2023

March 31, 2024

Commercial $ 259 $ — $ 12,463 $ 34,253 $ 46,975

Total $ — $ — $ 5,893 $ 52,724 $ 58,617

Troubled Debt Restructuring Disclosures Prior to the Adoption of ASU 2022-02

The following table details the recorded investments of loans restructured during the nine months ended September 30, 2022.

Extended Maturity Adjusted Payment Schedule Total

(in thousands, except number of contracts) Number of Contracts Balance at Period End Number of Contracts Balance at Period End Number of Contracts Balance at Period End

Nine months ended September 30, 2022

Commercial loans — $ — 1 $ 604 1 $ 604

Commercial real estate

— — — 18,581 18,581

Total $ 259 $ — $ 12,463 $ 52,834 $ 65,556

As of December 31, 2022 and September 30, 2022, the Company did no t have any loans considered restructured that were not on non-accrual.

Of the non-accrual loans at December 31, 2022 and September 30, 2022, $ 531,000 and $ 2.2 million, respectively, met the criteria for restructured.

These loans had no unfunded commitments at their respective balance sheet dates.

(5) Short-Term Borrowings and Long-Term Debt

The table below presents a summary of short-term borrowings:

(in thousands) September 30, 2023 December 31, 2022

Customer repurchase agreements $ — $ 1,142

(in thousands) March 31, 2024 December 31, 2023

Federal Home Loan Bank borrowings 750,000 1,500,000

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The table below presents a summary of long-term debt:

(in thousands) September 30, 2023 December 31, 2022

(in thousands) March 31, 2024 December 31, 2023

Bank-issued floating rate senior unsecured credit-linked notes due 2024 $ 200,000 $ 199,499

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Total long-term debt $ 859,823 $ 859,147

In the second quarter of 2023, the Company partially paid down $ 75.0 million of the senior unsecured credit-linked notes in accordance with the term of the notes.

(6) Financial Instruments with Off-Balance Sheet Risk

The table below presents the Company’s financial instruments with off-balance sheet risk, as well as the activity in the allowance for off-balance sheet credit losses related to those financial instruments.

The changes made to the Company’s current expected credit loss model, as discussed in Note 1 - Operations and Summary of Significant Accounting Policies, resulted in a reallocation of the allowance for credit losses between loan portfolio segments and allowance balances allocated to off-balance sheet financial instruments, the results of which are included in the table below.

The changes made result in a higher allocation of losses to off-balance sheet financial instruments.

See Note 4 - Loans and Allowance for Credit Losses on Loans for information regarding the allowance for credit losses on loans.

As a result, prior period balances in the table below have been reclassified to conform to the current period presentation of portfolio segments.

(in thousands) Commercial Mortgage

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Real Estate Consumer Total

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Beginning balance $ 36,040 $ 6 $ 10,147 $ 169 $ 46,362

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Ending balance $ 32,312 $ 34 $ 8,099 $ 164 $ 40,609

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Beginning balance $ 16,550 $ — $ 5,222 $ 21 $ 21,793

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Ending balance $ 17,885 $ — $ 4,511 $ 28 $ 22,424

(in thousands) September 30, 2023 December 31, 2022

(in thousands) March 31, 2024 December 31, 2023

Commitments to extend credit - period end balance $ 9,470,887 $ 9,749,085

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The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Basel III regulatory capital framework (the “Basel III Capital Rules”) adopted by U.S.

federal regulatory authorities, among other things, (i) establishes the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) defines the scope of the deductions/adjustments to the capital measures.

Additionally, the Basel III Capital Rules require that the Company maintains a 2.5 % capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements.

The Basel III Capital Rules adopted by U.S.

federal banking agencies, among other things, (i) establish the capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 Capital” instruments meeting stated requirements, (iii) requires that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) define the scope of the deductions/adjustments to the capital measures.

Additionally, the Basel III Capital Rules require that the Company maintain a 2.5 % capital conservation buffer comprised of CET1, with respect to each of CET1, Tier 1 and total capital to risk-weighted asset ratios.

A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.

No dividends were declared or paid on the Company’s common stock during the nine months ended September 30, 2023 or 2022.

In January 2023, the Company completed the full $ 150.0 million of share repurchases authorized by the Company’s board of directors on April 19, 2022.

On January 18, 2023, the Company’s board of directors authorized a new share repurchase program under which the Company may repurchase up to $ 150.0 million in shares of its outstanding common stock.

During the nine months ended September 30, 2023, the Company repurchased 1,011,909 shares of its common stock for an

aggregate price of $ 59.7 million, at a weighted average price of $ 58.98 per share.

The aggregate purchase price and weighted average price per share does not include the effect of excise tax incurred on net stock repurchases.

No dividends were declared or paid on the Company’s common stock during the three months ended March 31, 2024 or during 2023.

On January 17, 2024, the Company’s board of directors authorized a new share repurchase program under which the Company could repurchase up to $ 150.0 million in shares of its outstanding common stock, which is set to expire on January 31, 2025.

During the three months ended March 31, 2024, the Company repurchased 529,338 shares of its common stock for an aggregate price, including excise tax expense, of $ 31.5 million, at a weighted average price of $ 59.27 per share.

In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital regulations to account for changes to credit loss accounting under GAAP.

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In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period (five-year transition option).

The Company adopted CECL on January 1, 2020 and have elected to utilize the five-year transition option.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to average assets, each as defined in the regulations.

Management believes, as of September 30, 2023, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Financial institutions are categorized as well capitalized based on total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios.

As shown in the table below, the Company’s and Bank’s capital ratios exceeded the regulatory definition of well capitalized as of September 30, 2023 and December 31, 2022.

The regulatory authorities can apply changes in the classification of assets and such changes may retroactively subject the Company and the Bank to changes in capital ratios.

Any such change could reduce one or more capital ratios below well capitalized status.

In addition, a change may result in imposition of additional assessments by the Federal Deposit Insurance Corporation (“FDIC”) or could result in regulatory actions that could have a material effect on the Bank’s condition and results of operations.

The Company adopted CECL on January 1, 2020 and has elected to utilize the five-year transition option.

Because the Bank had less than $ 15.0 billion in total consolidated assets as of December 31, 2009, it is allowed to continue to classify the trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.

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In 2024, the amount of the notes that qualify as Tier 2 capital has been reduced by 80%.

The table below summarizes the Company’s and the Bank’s actual and required capital ratios under the Basel III Capital Rules.

The table below summarizes the Company’s and the Bank’s actual and required capital ratios under the Basel III Capital Rules and other standards.

As shown in the table below, the Company’s and Bank’s capital ratios exceeded the regulatory definition of well capitalized as of March 31, 2024 and December 31, 2023.

The ratios presented below include the effects of the election to utilize the five-year CECL transition described above.

Actual Minimum Capital Required(2) Capital Required to be Well Capitalized

(dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio

September 30, 2023

Company $ 3,287,021 12.70 % $ 1,811,941 7.00 % N/A N/A

Bank 3,570,990 13.85 % 1,805,139 7.00 % 1,676,200 6.50 %

Total capital (to risk-weighted assets)

Company 4,422,650 17.09 % 2,717,911 10.50 % 2,588,487 10.00 %

Bank 3,924,943 15.22 % 2,707,708 10.50 % 2,578,769 10.00 %

March 31, 2024 December 31, 2023

(dollars in thousands) Minimum Capital Required(2) Capital Required to be Well Capitalized Capital Amount Ratio Capital Amount Ratio

CET1 capital (to risk-weighted assets) 7.00 % N/A $ 3,251,260 12.38 % $ 3,264,609 12.65 %

Tier 1 capital (to risk-weighted assets) 8.50 % 6.00 % 3,661,260 13.95 % 3,674,609 14.24 %

Company 3,697,021 14.28 % 2,200,214 8.50 % 1,553,092 6.00 %

Bank 3,570,990 13.85 % 2,191,954 8.50 % 2,063,015 8.00 %

Tier 1 capital (to average assets)(1)

Company 3,697,021 12.14 % 1,218,163 4.00 % N/A N/A

Bank 3,570,990 11.76 % 1,214,985 4.00 % 1,518,731 5.00 %

December 31, 2022

Company $ 3,180,208 13.00 % $ 1,712,608 7.00 % N/A N/A

Bank 3,408,178 13.95 % 1,710,056 7.00 % 1,587,909 6.50 %

Total capital (to risk-weighted assets) 10.50 % 10.00 % 4,368,943 16.64 % 4,405,575 17.07 %

Company 4,331,098 17.70 % 2,568,912 10.50 % 2,446,583 10.00 %

Bank 3,987,720 16.32 % 2,565,083 10.50 % 2,442,937 10.00 %

Tier 1 capital (to average assets)(1) 4.00 % N/A 3,661,260 12.40 % 3,674,609 12.21 %

CET1 capital (to risk-weighted assets) 7.00 % 6.50 % 3,612,873 13.84 % 3,599,919 14.01 %

Tier 1 capital (to risk-weighted assets) 8.50 % 8.00 % 3,612,873 13.84 % 3,599,919 14.01 %

Company 3,590,208 14.67 % 2,079,595 8.50 % 1,467,950 6.00 %

Bank 3,568,178 14.61 % 2,076,496 8.50 % 1,954,349 8.00 %

Total capital (to risk-weighted assets) 10.50 % 10.00 % 3,948,661 15.13 % 3,959,100 15.41 %

Tier 1 capital (to average assets)(1) 4.00 % 5.00 % 3,612,873 12.30 % 3,599,919 12.00 %

Company 3,590,208 11.54 % 1,244,494 4.00 % N/A N/A

Bank 3,568,178 11.48 % 1,243,232 4.00 % 1,554,039 5.00 %

(1) The Tier 1 capital ratio (to average assets) is not impacted by the Basel III Capital Rules;

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(2) Percentages represent the minimum capital ratios plus, as applicable, the fully phased-in 2.5% CET1 capital buffer under the Basel III Capital Rules.

The Company is required to maintain reserve balances in cash and on deposit with the Federal Reserve based on a percentage of transactional deposits;

however, the Federal Reserve reduced the reserve requirement ratio to zero effective March 26, 2020, therefore the total requirement was zero at both September 30, 2023 and December 31, 2022.

(8) Stock-Based Compensation

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The table below summarizes the Company’s stock-based compensation expense:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2024 2023

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Total $ 8,534 $ 8,438

(in thousands except period data) September 30, 2023

(in thousands except period data) March 31, 2024

Unrecognized compensation expense related to unvested stock-settled awards $ 32,201

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(9) Fair Value Disclosures

The Company determines the fair market values of its assets and liabilities measured at fair value on a recurring and nonrecurring basis using the fair value hierarchy as prescribed in ASC 820.

See Note 1 - Operations and Summary of Significant Accounting Policies in the Company’s 2022 Form 10-K for information regarding the fair value hierarchy and a description of the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial statements.

The Company determines the fair market values of its assets and liabilities measured at fair value on a recurring and nonrecurring basis using the fair value hierarchy as prescribed in Accounting Standards Codification 820, Fair Value Measurements and Disclosures.

See Note 1 - Operations and Summary of Significant Accounting Policies in our 2023 Form 10-K for information regarding the fair value hierarchy and a description of the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial statements.

Assets and liabilities measured at fair value are as follows:

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(in thousands) Level 1 Level 2 Level 3

September 30, 2023

March 31, 2024

Available-for-sale debt securities:(1)

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Equity securities(1)(2) 40,661 11,164 —

Mortgage loans held for sale(3) — 706 —

Loans held for investment(4) — — 38,341

Derivative assets(5)

Securities sold not yet purchased(6)

Derivative liabilities(5)

Non-qualified deferred compensation plan liabilities(7)

(1) Investment securities are measured at fair value on a recurring basis, generally monthly.

(2) Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments in exchange traded funds, primarily related to the Company’s non-qualified deferred compensation plan.

(1) Available-for-sale debt securities and equity securities are measured at fair value on a recurring basis, generally monthly.

(2) Equity securities consist of investments that qualify for consideration under the regulations implementing the Community Reinvestment Act and investments in exchange traded funds.

(3) Loans held for sale are measured at fair value on a recurring basis, generally monthly.

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(in thousands) Balance at Beginning of Period Purchases / Additions Sales / Reductions Realized Unrealized Balance at End of Period

Three Months Ended September 30, 2023

Available-for-sale debt securities:(1)

CRT securities $ 11,756 $ — $ ( 341 ) $ — $ 676 $ 12,091

Three Months Ended September 30, 2022

Available-for-sale debt securities:(1)

CRT securities $ 11,670 $ — $ — $ — $ 32 $ 11,702

Loans held for sale(2) 4,266 571 ( 450 ) — — 4,387

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Available-for-sale debt securities:(1)

CRT securities $ 11,995 $ — $ ( 209 ) $ — $ 475 $ 12,261

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Available-for-sale debt securities:(1)

Tax-exempt asset-backed securities $ 180,033 $ — $ ( 170,626 ) $ — $ ( 9,407 ) $ —

CRT securities $ 11,861 $ — $ — $ — $ 67 $ 11,928

Loans held for sale(2) 7,658 1,898 ( 5,050 ) — ( 119 ) 4,387

(1) Unrealized gains/(losses) on available-for-sale debt securities are recorded in AOCI .

Realized gains/(losses) are recorded in other non-interest income on the consolidated statements of income and other comprehensive income/(loss).

(2) Realized and unrealized gains/(losses) on loans held for sale are recorded in other non-interest income on the consolidated statements of income and other comprehensive income/(loss).

CRT securities

The fair value of CRT securities is based on a discounted cash flow model, which utilizes Level 3, or unobservable, inputs, the most significant of which were a discount rate and weighted-average life.

At September 30, 2023, the discount rates utilized ranged from 6.89 % to 10.61 % and the weighted-average life ranged from 5.14 years to 7.92 years.

On a combined amortized cost weighted-average basis a discount rate of 8.20 % and a weighted-average life of 6.12 years were utilized to determine the fair value of these securities at September 30, 2023.

The fair value of CRT securities is based on a discounted cash flow model, which utilizes Level 3 inputs, the most significant of which were a discount rate and weighted-average life.

At March 31, 2024, the discount rates utilized ranged from 5.43 % to 7.99 % and the weighted-average life ranged from 4.76 years to 7.42 years.

On a combined amortized cost weighted-average basis a discount rate of 6.36 % and a weighted-average life of 5.73 years were utilized to determine the fair value of these securities at March 31, 2024.

At December 31, 2023, the combined weighted-average discount rate and weighted-average life utilized were 6.57 % and 6.06 years, respectively.

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Certain collateral-dependent loans held for investment are reported at fair value when, based upon an individual evaluation, the specific allocation of the allowance for credit losses that is deducted from the loan's amortized cost is based upon the fair value of the loan's underlying collateral.

The $ 32.8 million fair value of loans held for investment at September 30, 2023 reported above includes impaired loans with a carrying value of $ 50.4 million that were reduced by specific allowance allocations totaling $ 17.5 million based on collateral valuations utilizing Level 3 inputs.

There were no collateral-dependent loans held for investment reported at fair value at December 31, 2022.

The $ 30.5 million fair value of loans held for investment at March 31, 2024 reported above includes impaired loans with a carrying value of $ 59.4 million that were reduced by specific allowance allocations totaling $ 28.9 million based on collateral valuations utilizing Level 3 inputs.

The $ 38.3 million fair value of loans held for investment at December 31, 2023 reported above includes impaired loans with a carrying value of $ 58.3 million that were reduced by specific allowance allocations totaling $ 20.0 million based on collateral valuations utilizing Level 3 inputs.

Fair Value of Financial Instruments

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(in thousands) Total Level 1 Level 2 Level 3

September 30, 2023

March 31, 2024

Financial assets:

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Long-term debt 859,147 801,309 — 801,309 —

Securities sold not yet purchased 10,602 10,602 10,602 — —

Derivative liabilities 70,917 70,917 — 70,917 —

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The notional amounts and estimated fair values of derivative positions outstanding are presented in the following table.

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Estimated Fair Value Estimated Fair Value

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In some cases, collateral may be required from the counterparties involved if the net value of the derivative instruments exceeds a nominal amount.

The Company’s credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 12.3 million at September 30, 2023 and approximately $ 13.5 million at December 31, 2022.

The Company’s credit exposure associated with these instruments, net of any collateral pledged, was approximately $ 11.6 million at March 31, 2024 and approximately $ 32.9 million at December 31, 2023.

Collateral levels are monitored and adjusted on a regular basis for changes in the value of derivative instruments.

At September 30, 2023, the Company had $ 148.1 million in cash collateral pledged to counterparties included in interest bearing cash and cash equivalents on the consolidated balance sheet and $ 81.5 million in cash collateral received from counterparties included in interest bearing deposits on the consolidated balance sheet.

At March 31, 2024, the Company had $ 109.5 million in cash collateral pledged to counterparties included in interest bearing cash and cash equivalents on the consolidated balance sheet and $ 58.7 million in cash collateral received from counterparties included in interest bearing deposits on the consolidated balance sheet.

The comparative amounts at December 31, 2023, were $ 119.0 million in cash collateral pledged to counterparties and $ 42.3 million cash collateral received from counterparties.

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The risk participation agreements entered into by the Company as a participant bank provide credit protection to the financial institution counterparty should the borrower fail to perform on its interest rate derivative contract with that financial institution.

The Company is party to 16 risk participation agreements where it acts as a participant bank with a notional amount of $ 261.7 million at September 30, 2023, compared to 19 risk participation agreements with a notional amount of $ 291.2 million at December 31, 2022.

The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $ 10.4 million at September 30, 2023 and $ 8.9 million at December 31, 2022.

The fair value of these exposures was insignificant to the consolidated financial statements at both September 30, 2023 and December 31, 2022.

The Company is party to 14 risk participation agreements where it acts as a participant bank with a notional amount of $ 229.0 million at March 31, 2024, compared to 14 risk participation agreements with a notional amount of $ 230.7 million at December 31, 2023.

The maximum estimated exposure to these agreements, assuming 100% default by all obligors, was approximately $ 6.4 million at March 31, 2024 and $ 4.5 million at December 31, 2023.

The fair value of these exposures was insignificant to the consolidated financial statements at both March 31, 2024 and December 31, 2023.

Risk participation agreements entered into by the Company as the lead bank provide credit protection should the borrower fail to perform on its interest rate derivative contract.

The Company is party to 13 risk participation agreements where the Company acts as the lead bank having a notional amount of $ 197.7 million at September 30, 2023, compared to 18 agreements having a notional amount of $ 222.0 million at December 31, 2022.

The Company is party to 16 risk participation agreements where the Company acts as the lead bank having a notional amount of $ 211.3 million at March 31, 2024, compared to 15 agreements having a notional amount of $ 204.8 million at December 31, 2023.

Derivatives Designated as Cash Flow Hedges

The Company enters into interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate.

During the nine months ended September 30, 2023, the Company recorded $ 66.1 million in unrealized losses to adjust its cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 43.4 million from AOCI as a decrease to interest income on loans.

Based on current market conditions, the Company estimates that during the next 12 months, an additional $ 70.9 million will be reclassified from AOCI as a decrease to interest income.

As of September 30, 2023, the maximum length of time over which forecasted transactions are hedged is 3.00 years.

During the three months ended March 31, 2024, the Company recorded $ 27.9 million in unrealized losses to adjust its cash flow hedges to fair value, which was recorded net of tax to AOCI, and reclassified $ 18.0 million from AOCI as a decrease to interest income on loans.

Based on current market conditions, the Company estimates that during the next 12 months, an additional $ 58.1 million related to active and terminated hedges will be reclassified from AOCI as a decrease to interest income.

As of March 31, 2024, the maximum length of time over which forecasted transactions are hedged is 1.92 years.

(11) Accumulated Other Comprehensive Income

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(in thousands) Cash Flow Hedges Available-for-Sale Securities Held-to-Maturity Securities Total

Three Months Ended September 30, 2023

Beginning balance $ ( 81,785 ) $ ( 313,196 ) $ ( 45,327 ) $ ( 440,308 )

Change in unrealized gain/(loss) ( 20,572 ) ( 81,758 ) — ( 102,330 )

Amounts reclassified into net income 17,378 — 1,907 19,285

Total other comprehensive income/(loss) ( 3,194 ) ( 81,758 ) 1,907 ( 83,045 )

Income tax expense/(benefit) ( 671 ) ( 17,170 ) 400 ( 17,441 )

Total other comprehensive income/(loss), net of tax ( 2,523 ) ( 64,588 ) 1,507 ( 65,604 )

Ending balance $ ( 84,308 ) $ ( 377,784 ) $ ( 43,820 ) $ ( 505,912 )

Three Months Ended September 30, 2022

Beginning balance $ ( 316 ) $ ( 220,090 ) $ ( 51,802 ) $ ( 272,208 )

Change in unrealized gain/(loss) ( 78,177 ) ( 129,027 ) — ( 207,204 )

Amounts reclassified into net income ( 1,760 ) — 2,369 609

Total other comprehensive income/(loss) ( 79,937 ) ( 129,027 ) 2,369 ( 206,595 )

Income tax expense/(benefit) ( 16,786 ) ( 27,095 ) 497 ( 43,384 )

Total other comprehensive income/(loss), net of tax ( 63,151 ) ( 101,932 ) 1,872 ( 163,211 )

Ending balance $ ( 63,467 ) $ ( 322,022 ) $ ( 49,930 ) $ ( 435,419 )

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Beginning balance $ ( 45,749 ) $ ( 273,806 ) $ ( 42,449 ) $ ( 362,004 )

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Ending balance $ ( 53,544 ) $ ( 285,238 ) $ ( 41,104 ) $ ( 379,886 )

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Beginning balance $ ( 66,394 ) $ ( 304,309 ) $ ( 48,240 ) $ ( 418,943 )

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(12) New Accounting Standards

ASU 2023-05 “Business Combinations - Joint Venture Formations (Subtopic 805-60) – Recognition and Initial Measurement” (“ASU 2023-05”) addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements.

ASU 2023-05 requires certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value.

The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice.

ASU 2023-05 is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025 and is not expected to have an impact on our financial statements .

Accounting Standards Update 2024-01 “Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards” (“ASU 2024-01”) clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and therefore within the scope of other guidance.

ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic 718 to improve its clarity and operability without changing the guidance.

Entities can apply the amendments either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption.

If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting principle.

ASU 2024-01 is effective January 1, 2025, including interim periods, and is not expected to have a significant impact on our financial statements.

Accounting Standards Update 2024-02 “Codification Improvements” (“ASU 2024-02”) amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification.

The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance.

Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities.

ASU 2024-02 is effective January 1, 2025 and is not expected to have a significant impact on our financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements